Using a ROBS to pay off current SBA Loan
So can I use a ROBS to pay off a current SBA LOAN? And – when would that make the most sense? I am in year three of a 10 year SBA loan on a franchise, and see this as a way to reduce the monthly loan payment, thus freeing up more salary for myself while not having to wait. The investment of the retirement funds in the business will allow me in essence to access the “proceeds” of the retirement account before 59 and a half without penalty – PLUS giving me control over the retirement funds. Am I missing something here – or would this be a prudent decision? Oh- one more thing – the business is already at break even, and in fact making a little bit right now, but I really need the personal monthly infusion of cash to live on. This would make the business debt free, however would almost entirely drain my retirement account, and that concerns me at 56. Thanks for the advice!
Hello, Robert, and thank you for your question. It’s good to hear that your business is already at breakeven, but definitely understandable that you would have concerns before draining your retirement account.
On the face of it, it would appear that you CAN use a ROBS for the purpose you outlined. I’m not aware of any prohibition against using a ROBS to pay down debt including an SBA loan.
However, there are certain guidelines and prohibitions for ROBS that you should be aware of before you take any action. For example, when you use a ROBS there are limits to how much you can pay yourself in salary from your new business – this is because you are required to run the business for the benefit of your retirement account that’s invested in the company rather than yourself as an owner. Also, if you have any employees you will need to allow them to invest in the business as well.
If you are thinking about using a ROBS for special purposes like paying off an SBA loan, the best thing you can do is contact a good ROBS provider to get specific answers to any questions and let them help you through the process. Our recommended ROBS provider is Guidant. They offer free consultations for new potential clients and we’re confident they can help you through the process if you decide to use a ROBS.
Hope this helps – best wishes for continued success.